Hedge Fund Performance

This year equity performance has ended with a downward movement from this years earlier upward push. How have hedge fund styles from different categories performed? Below are a few charts I constructed from my schools indices.

Current-Month-Performance

 

YTD-Equity

The performance data are pretty representative compared to the strategies employed by hedge funds. Below are the historic equity curves of all the strategies back to 1994. Although the index is an aggregated performance of many different hedge funds, I feel that the hedge fund performance are effected by stress factors that are similar to equities.

Inception-Equity

Some research I finally have time to do relate to correlation tightening. This affect as seen in 2008 is effectively the enemy of diversification. Some questions I have been ruminating on are:

-If during stress periods asset classes returns share high correlation, what measures can be taken to reduce such risk?

-Which asset classes provide the most diversification during such periods and how do their return relate to equity like assets during normal times?

-Which asset classes on the other hand offers no diversification benefits in bad times?

In normal times, we are all hedge fund super stars as returns are achieved so easily due to upward drift. It is the times of market shocks that we should build our portfolio on.

 

Cheers

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